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Year-over-year farm income improving

Jun 07, 2010

According to the new Rabobank U.S. Farm & Ranch Survey, year-over-year income for U.S. farmers and ranchers has improved significantly over findings in the previous two surveys.

“What’s happening on U.S. farms and ranches mirrors the global economy — we’re beginning to see improvement,” said John Ryan, president and Chief Executive Officer for Rabo AgriFinance. “That improvement translates into some encouraging — albeit patchy — signs of recovery.”

The spring 2010 Rabobank U.S. Farm & Ranch Survey results show U.S. producers report a 24 percent improvement in income since fall 2009 while about half of U.S. producers state their income was worse when compared to last year. For example, in the North Central Region in spring 2010, only 58 percent stated their income is worse. In fall 2009, 82 percent of respondents said the same thing, demonstrating a 24 percent improvement — and highest regional improvement.

Future income expectations show the highest index value since the inception of the Rabobank U.S. Farm & Ranch Survey in 2008. Producers expect equal amounts of income improvement and income deterioration in the next 12 months.

Despite optimistic perspectives on increasing income, profits may lag. In fact, the survey found 43 percent of participating producers reported a decline in profitability. Approximately 20 percent more producers reported higher input or “cost of doing business” costs than lower costs.

“U.S. agriculture has always been resilient in the face of many challenges,” Ryan said. “Producers are accustomed to the cyclical nature of agriculture and are able to better manage their operations by thinking long-term and adapting their operations for the future.”

In addition to providing a snapshot of producers’ income, the semi-annual Rabobank U.S. Farm & Ranch Survey also looks at the agriculture industry’s economic and financial concerns, measures Rural Confidence, and investigates expansion plans.

The ag economy remains a concern for 94 percent of producers, nearly equally divided by amount of concern — extremely (34 percent), very (30 percent) or somewhat (32 percent) concerned. These concerns vary little regionally. However, the survey results indicate there has been improvement in the ag economy in the South and West, while those in the North Central states are more concerned than they have been in the past.

Looking ahead, more farmers (51 percent) still expect the ag economy to deteriorate compared to improve (17 percent). A key measurement of this survey is the Rural Confidence Index, which is calculated as the percentage of producers who believe the ag economy will improve in the next year less the percentage who consider it will get worse.

Since the last survey in fall 2009, the Rural Confidence Index has improved slightly by three percentage points, standing at -34. While no significant differences are seen between types of farm, farm sizes or regions, the survey shows considerable differences in the Rural Confidence Index within producer groups.

The number of producers planning to purchase, rent or lease new land in the coming year is two and a half times higher than in previous years. While most producers remain cautious in their plans to hire staff to work that land in the coming year, larger producers plan to employ slightly more people compared to smaller producers, who are still planning to shed labor in the coming year.

Additionally, little change has occurred in plans for equipment purchases, with slightly less than one third of farmers planning to make a new equipment purchase in the next year. According to the survey results, however, the most significant changes have been in the decisiveness of producers’ intentions.

“Producers are much clearer in whether they are going to purchase a new or used piece of equipment,” Ryan said. Part of this translates into a new high in intentions to purchase new equipment since the first survey.

The Spring 2010 Rabobank U.S. Farm & Ranch Survey takes a general pulse of agriculture in the United States. Several survey items illustrate larger farms enjoy economies of scale, which tend to make them more optimistic.

“As with any business, there are benefits and challenges at any size and industry — agriculture is no different,” Ryan said. “Every farmer or rancher has unique needs and business considerations. The key is finding the right balance for each operation.”

In the North Central and Southern Regions, the larger farms ($1 million to greater than $3 million gross farm income) and those with more than three employees were the most optimistic about future income. Additionally, cost improvements were larger in those North Central Region farms with $1 million to greater than $3 million gross farm income, which suggests economies of scale help producers keep their costs in check.

Larger producers are the most active group in respect to land purchases, where 20 percent of producers plan to purchase with 11 percent planning to sell land. Additionally, larger producers plan to employ slightly larger numbers than lose personnel, compared to the smaller producers who were still planning to shed further labor in the coming year.

However, producers with the perceived most difficult jobs are those operating larger units and those who employ more workers.

Insights from agricultural producers — communicated in the Spring 2010 Rabobank U.S. Farm & Ranch Survey — were gathered by Kaliber Americas using Computer Assisted Telephone Interviews. Nearly 600 interviews were conducted in the last two weeks of March and early April. The sample group had a gross farm income of more than $250,000 with further splits for higher income groups in the three major U.S. agricultural regions.